[Federal Register Volume 82, Number 168 (Thursday, August 31, 2017)]
[Proposed Rules]
[Pages 41365-41376]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18520]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

29 CFR Part 2550

[Application Number D-11712; D-11713; D-11850]
ZRIN 1210-ZA27


Extension of Transition Period and Delay of Applicability Dates; 
Best Interest Contract Exemption (PTE 2016-01); Class Exemption for 
Principal Transactions in Certain Assets Between Investment Advice 
Fiduciaries and Employee Benefit Plans and IRAs (PTE 2016-02); 
Prohibited Transaction Exemption 84-24 for Certain Transactions 
Involving Insurance Agents and Brokers, Pension Consultants, Insurance 
Companies, and Investment Company Principal Underwriters (PTE 84-24)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed amendments to PTE 2016-01, PTE 2016-02, and 
PTE 84-24.

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SUMMARY: This document proposes to extend the special transition period 
under sections II and IX of the Best Interest Contract Exemption and 
section VII of the Class Exemption for Principal Transactions in 
Certain Assets Between Investment Advice Fiduciaries and Employee 
Benefit Plans and IRAs. This document also proposes to delay the 
applicability of certain amendments to Prohibited Transaction Exemption 
84-24 for the same period. The primary purpose of the proposed 
amendments is to give the Department of Labor the time necessary to 
consider possible changes and alternatives to these exemptions. The 
Department is particularly concerned that, without a delay in the 
applicability dates, regulated parties may incur undue expense to 
comply with conditions or requirements that it ultimately determines to 
revise or repeal. The present transition period is from June 9, 2017, 
to January 1, 2018. The new transition period would end on July 1, 
2019. The proposed amendments to these exemptions would affect 
participants and beneficiaries of plans, IRA owners and fiduciaries 
with respect to such plans and IRAs.

DATES: Comments must be submitted on or before September 15, 2017.

ADDRESSES: All written comments should be sent to the Office of 
Exemption Determinations by any of the following methods, identified by 
RIN 1210-AB82:
    Federal eRulemaking Portal: http://www.regulations.gov at Docket ID 
number: EBSA-2017-0004. Follow the instructions for submitting 
comments.
    Email to: [email protected].
    Mail: Office of Exemption Determinations, EBSA, (Attention: D-
11712, 11713, 11850), U.S. Department of Labor, 200 Constitution Avenue 
NW., Suite 400, Washington, DC 20210.
    Hand Delivery/Courier: OED, EBSA (Attention: D-11712, 11713, 
11850), U.S. Department of Labor, 122 C St. NW., Suite 400, Washington, 
DC 20001.
    Comments will be available for public inspection in the Public 
Disclosure Room, EBSA, U.S. Department of Labor, Room N-1513, 200 
Constitution Avenue NW., Washington, DC 20210. Comments will also be 
available online at www.regulations.gov, at Docket ID number: EBSA-
2017-0004 and www.dol.gov/ebsa, at no charge. Do not include personally 
identifiable information or confidential business information that you 
do not want publicly disclosed. Comments online can be retrieved by 
most Internet search engines.

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FOR FURTHER INFORMATION CONTACT: Brian Shiker, telephone (202) 693-
8824, Office of Exemption Determinations, Employee Benefits Security 
Administration.

SUPPLEMENTARY INFORMATION:

A. Procedural Background

ERISA and the 1975 Regulation

    Section 3(21)(A)(ii) of the Employee Retirement Income Security Act 
of 1974, as amended (ERISA), in relevant part provides that a person is 
a fiduciary with respect to a plan to the extent he or she renders 
investment advice for a fee or other compensation, direct or indirect, 
with respect to any moneys or other property of such plan, or has any 
authority or responsibility to do so. Section 4975(e)(3)(B) of the 
Internal Revenue Code (``Code'') has a parallel provision that defines 
a fiduciary of a plan (including an individual retirement account or 
annuity (IRA)). The Department of Labor (``the Department'') in 1975 
issued a regulation establishing a five-part test under this section of 
ERISA. See 29 CFR 2510.3-21(c)(1) (2015).\1\ The Department's 1975 
regulation also applied to the definition of fiduciary in the Code.
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    \1\ The 1975 Regulation was published as a final rule at 40 FR 
50842 (Oct. 31, 1975).
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The New Fiduciary Rule and Related Exemptions

    On April 8, 2016, the Department replaced the 1975 regulation with 
a new regulatory definition (the ``Fiduciary Rule''). The Fiduciary 
Rule defines who is a ``fiduciary'' of an employee benefit plan under 
section 3(21)(A)(ii) of ERISA as a result of giving investment advice 
to a plan or its participants or beneficiaries. The Fiduciary Rule also 
applies to the definition of a ``fiduciary'' of a plan in the Code. The 
Fiduciary Rule treats persons who provide investment advice or 
recommendations for a fee or other compensation with respect to assets 
of a plan or IRA as fiduciaries in a wider array of advice 
relationships than was true under the 1975 regulation. On the same 
date, the Department published two new administrative class exemptions 
from the prohibited transaction provisions of ERISA (29 U.S.C. 1106) 
and the Code (26 U.S.C. 4975(c)(1)): The Best Interest Contract 
Exemption (BIC Exemption) and the Class Exemption for Principal 
Transactions in Certain Assets Between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs (Principal Transactions Exemption), 
as well as amendments to previously granted exemptions (collectively 
referred to as ``PTEs,'' unless otherwise indicated). The Fiduciary 
Rule and PTEs had an original applicability date of April 10, 2017.

Presidential Memorandum

    By Memorandum dated February 3, 2017, the President directed the 
Department to prepare an updated analysis of the likely impact of the 
Fiduciary Rule on access to retirement information and financial 
advice. The President's Memorandum was published in the Federal 
Register on February 7, 2017, at 82 FR 9675. On March 2, 2017, the 
Department published a notice of proposed rulemaking that proposed a 
60-day delay of the applicability date of the Rule and PTEs. The 
proposal also sought public comments on the questions raised in the 
Presidential Memorandum and generally on questions of law and policy 
concerning the Fiduciary Rule and PTEs.\2\ The Department received 
nearly 200,000 comment and petition letters expressing a wide range of 
views on the proposed 60-day delay. Approximately 15,000 commenters and 
petitioners supported a delay of 60 days or longer, with some 
requesting at least 180 days and some up to 240 days or a year or 
longer (including an indefinite delay or repeal); 178,000 commenters 
and petitioners opposed any delay whatsoever at that time.
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    \2\ 82 FR 12319.
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First Delay of Applicability Dates

    On April 7, 2017, the Department promulgated a final rule extending 
the applicability date of the Fiduciary Rule by 60 days from April 10, 
2017, to June 9, 2017 (``April Delay Rule'').\3\ It also extended from 
April 10 to June 9, the applicability dates of the BIC Exemption and 
Principal Transactions Exemption and required investment advice 
fiduciaries relying on these exemptions to adhere only to the Impartial 
Conduct Standards as conditions of those exemptions during a transition 
period from June 9, 2017, through January 1, 2018. The April Delay Rule 
also delayed the applicability of amendments to an existing exemption, 
Prohibited Transaction Exemption 84-24 (PTE 84-24), until January 1, 
2018, other than the Impartial Conduct Standards, which became 
applicable on June 9, 2017. Lastly, the April Delay Rule extended for 
60 days, until June 9, 2017, the applicability dates of amendments to 
other previously granted exemptions. The 60-day delay was considered 
appropriate by the Department at that time, including for the Impartial 
Conduct Standards in the BIC Exemption and Principal Transactions 
Exemption, while compliance with other conditions for transactions 
covered by these exemptions, such as requirements to make specific 
disclosures and representations of fiduciary compliance in written 
communications with investors, was postponed until January 1, 2018, by 
which time the Department intended to complete the examination and 
analysis directed by the Presidential Memorandum.
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    \3\ 82 FR 16902.
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Request for Information

    On July 6, 2017, the Department published in the Federal Register a 
Request for Information (RFI). 82 FR 31278. The purpose of the RFI was 
to augment some of the public commentary and input received in response 
to the March 2, 2017, request for comments on issues raised in the 
Presidential Memorandum. In particular, the RFI sought public input 
that could form the basis of new exemptions or changes to the Rule and 
PTEs. The RFI also specifically sought input regarding the advisability 
of extending the January 1, 2018, applicability date of certain 
provisions in the BIC Exemption, the Principal Transactions Exemption, 
and PTE 84-24. Comments relating to extension of the January 1, 2018, 
applicability date of certain provisions were requested by July 21, 
2017. All other comments were requested by August 7, 2017. As of July 
21, the Department had received approximately 60,000 comment and 
petition letters expressing a wide range of views on whether the 
Department should grant an additional delay and what should be the 
duration of any such delay. These comments are discussed in Section C, 
below, in connection with the proposed amendments.

B. Current Transition Period

BIC Exemption (PTE 2016-01) and Principal Transactions Exemption (PTE 
2016-02)

    Although the Fiduciary Rule, BIC Exemption, and Principal 
Transactions Exemption first became applicable on June 9, 2017, 
transition relief is provided throughout the current Transition Period, 
which runs from June 9, 2017, through January 1, 2018. ``Financial 
Institutions'' and ``Advisers,'' as defined in the exemptions, who wish 
to rely on these exemptions for covered transactions during this period 
must adhere to the ``Impartial Conduct Standards'' only. In general, 
this means that Financial

[[Page 41367]]

Institutions and Advisers must give prudent advice that is in 
retirement investors' best interest, charge no more than reasonable 
compensation, and avoid misleading statements.\4\
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    \4\ In the Principal Transactions Exemption, the Impartial 
Conduct Standards specifically refer to the fiduciary's obligation 
to seek to obtain the best execution reasonably available under the 
circumstances with respect to the transaction, rather than to 
receive no more than ``reasonable compensation.''
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    The remaining conditions of the BIC Exemption would become 
applicable on January 1, 2018, absent a further delay of their 
applicability. This includes the requirement, for transactions 
involving IRA owners, that the Financial Institution enter into an 
enforceable written contract with the retirement investor. The contract 
would include an enforceable promise to adhere to the Impartial Conduct 
Standards, an express acknowledgement of fiduciary status, and a 
variety of disclosures related to fees, services, and conflicts of 
interest. IRA owners, who do not have statutory enforcement rights 
under ERISA, would be able to enforce their contractual rights under 
state law. Also, as of January 1, 2018, the exemption requires 
Financial Institutions to adopt policies and procedures that meet 
specified conflict-mitigation criteria. In particular, the policies and 
procedures must be reasonably and prudently designed to ensure that 
Advisers adhere to the Impartial Conduct Standards and must provide 
that neither the Financial Institution nor (to the best of its 
knowledge) its affiliates or related entities will use or rely on 
quotas, appraisals, performance or personnel actions, bonuses, 
contests, special awards, differential compensation, or other actions 
or incentives that are intended or would reasonably be expected to 
cause advisers to make recommendations that are not in the best 
interest of the retirement investor.\5\ Financial Institutions would 
also be required at that time to provide disclosures, both to the 
individual retirement investor on a transaction basis, and on a Web 
site.
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    \5\ During the Transition Period, the Department expects 
financial institutions to adopt such policies and procedures as they 
reasonably conclude are necessary to ensure that advisers comply 
with the impartial conduct standards. During that period, however, 
the Department does not require firms and advisers to give their 
customers a warranty regarding their adoption of specific best 
interest policies and procedures, nor does it insist that they 
adhere to all of the specific provisions of Section IV of the BIC 
Exemption as a condition of compliance. Instead, financial 
institutions retain flexibility to choose precisely how to safeguard 
compliance with the impartial conduct standards, whether by tamping 
down conflicts of interest associated with adviser compensation, 
increased monitoring and surveillance of investment recommendations, 
or other approaches or combinations of approaches.
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    Similarly, while the Principal Transactions Exemption is 
conditioned solely on adherence to the Impartial Conduct Standards 
during the current Transition Period, its remaining conditions also 
will become applicable on January 1, 2018, absent a further delay of 
their applicability. The Principal Transactions Exemption permits 
investment advice fiduciaries to sell to or purchase from plans or IRAs 
investments in ``principal transactions'' and ``riskless principal 
transactions''--transactions involving the sale from or purchase for 
the Financial Institution's own inventory. Conditions scheduled to 
become applicable on January 1, 2018, include a contract requirement 
and a policies and procedures requirement that mirror the requirements 
in the BIC Exemption. The Principal Transactions Exemption also 
includes some conditions that are different from the BIC Exemption, 
including credit and liquidity standards for debt securities sold to 
plans and IRAs pursuant to the exemption and additional disclosure 
requirements.

PTE 84-24

    PTE 84-24, which applies to advisory transactions involving 
insurance and annuity contracts and mutual fund shares, was most 
recently amended in 2016 in conjunction with the development of the 
Fiduciary Rule, BIC Exemption, and Principal Transactions Exemption.\6\ 
Among other changes, the amendments included new definitional terms, 
added the Impartial Conduct Standards as requirements for relief, and 
revoked relief for transactions involving fixed indexed annuity 
contracts and variable annuity contracts, effectively requiring those 
Advisers who receive conflicted compensation for recommending these 
products to rely upon the BIC Exemption. However, except for the 
Impartial Conduct Standards, which were applicable beginning June 9, 
2017, the remaining amendments are not applicable until January 1, 
2018. Thus, because the amendment revoking the availability of PTE 84-
24 for fixed indexed annuities is not applicable until January 1, 2018, 
affected parties (including insurance intermediaries) may rely on PTE 
84-24, subject to the existing conditions of the exemption and the 
Impartial Conduct Standards, for recommendations involving all annuity 
contracts during the Transition Period.
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    \6\ 81 FR 21147 (April 8, 2016).
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C. Comments and Proposed Amendments

    Question 1 of the RFI specifically asked whether a delay in the 
January 1, 2018, applicability date of the provisions in the BIC 
Exemption, Principal Transactions Exemption and amendments to PTE 84-24 
would reduce burdens on financial services providers and benefit 
retirement investors by allowing for more efficient implementation 
responsive to recent market developments. This question also made 
inquiry into risks, advantages, and costs and benefits associated with 
such a delay.
    Many commenters supported delaying the January 1, 2018, 
applicability dates of these PTEs. For example, one commenter stated 
that there is ``no question that the comprehensive reexamination 
directed by the President cannot be completed by January 1, 2018, 
especially where the record is replete with evidence that the result of 
that review will be required revisions to the Rule and exemptions, all 
of which take time.'' \7\ In addition, another commenter stated that it 
believes ``a thorough and thoughtful re-assessment of the Fiduciary 
Rule, with appropriate coordination with other regulators, will take 
months'' and that if the Department does not delay the applicability 
date during this review period, ``the industry has no choice but to 
continue preparing for the Fiduciary Rule in a form that may never 
become effective leading to significant wasted expenses that benefits 
no one.'' \8\ Other commenters disagreed, however, asserting that full 
application of the Fiduciary Rule and PTEs were necessary to protect 
retirement investors from conflicts of interests and that the 
applicability dates should not have been delayed from April, 2017, and 
that the January 1, 2018, date should not be further delayed.\9\ At the 
same time, still others stated their view that the Fiduciary Rule and 
PTEs should be repealed and replaced, either with the original 1975 
regulation or with a substantially revised rule.\10\
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    \7\ Comment Letter #109 (Securities Industry and Financial 
Markets Association).
    \8\ Comment Letter #181 (Voya Financial).
    \9\ See, e.g., Comment Letter #273 (National Employment Law 
Project) (``Because these workers need the protections afforded by 
the full set of Conditions as soon as possible, NELP strongly 
opposes further delay of the application of any of the Conditions. 
NELP also disagrees with the Department's decision to even consider 
an additional delay in the applicability date of the Conditions.'').
    \10\ See, e.g., Comment Letter #316 (Aeon Wealth Management) 
(``The current Fiduciary Rule should not be amended or extended in 
any way. IT SHOULD BE COMPLETELY ELIMINATED! It is the first step 
towards the government taking control of everyone's personal 
retirement assets.'').

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[[Page 41368]]

    Among the commenters supporting a delay, some suggested a fixed 
length of time and others suggested a more open-ended delay. Of those 
commenters suggesting a fixed length delay, there was no consensus 
among them regarding the appropriate length, but the range generally 
was 1 to 2 years from the current applicability date of January 1, 
2018.\11\ Those commenters suggesting a more open-ended framework for 
measuring the length of the delay generally recommended that the 
applicability date be delayed for at least as long as it takes the 
Department to finish the reexamination directed by the President. These 
commenters suggested that the length of the delay should be measured 
from the date the Department, after finishing the reexamination, either 
decided that there will be no new amendments or exemptions or the date 
the Department publishes a new exemption or major revisions to the 
Fiduciary Rule and PTEs.\12\
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    \11\ See, e.g., Comment Letter #25 (National Federation of 
Independent Business (delay at least until January 1, 2019); Comment 
Letter #159 (Davis & Harman) (delay until at least September 1, 
2019); Comment Letter #183 (Morgan Stanley) (at least 18 months); 
Comment Letter #196 (American Council of Life Insurers) (one year); 
Comment Letter #208 (Capital Group) (at least January 1, 2019); 
Comment Letter #246 (Ameriprise Financial) (supports a two-year 
delay of the January 1, 2018 compliance date of the Rule); Comment 
Letter #258 (Wells Fargo) (delay at least 24 months); Comment Letter 
#290 (Annexus and other entities/Drinker, Biddle&Reath) (delay at 
least until January 1, 2019); Comment Letter #291 (Farmers Financial 
Solutions) (delay until April 2019).
    \12\ See, e.g., Comment Letter #134 (Insured Retirement 
Institute (delay until January 1, 2020, or the date that is 18 
months after the Department takes final action on the Fiduciary 
Rule); Comment Letter #229 (Investment Company Institute) (one year 
after finalization of modified rule); Comment Letter #109 
(Securities Industry and Financial Markets Association) (a minimum 
of 24 months after completion of the review and publication of final 
rules); Comment Letter #266 (Edward D. Jones & Co.) (later of July 
1, 2019 or one year after the promulgation of any material 
amendments); Comment Letter #251 (Teachers Insurance and Annuity 
Association of America) (at least one year after the Department has 
promulgated changes to the Rule and PTEs); Comment Letter #196 
(Prudential Financial) (at least 12 months with new applicability 
dates in conjunction with proposed changes); Comment Letter #212 
(American Bankers Association) (at least twelve months after the 
effective date of any changes or revisions); Comment Letter #211 
(Transamerica) (meaningful period following promulgation of changes 
to the Fiduciary Rule); Comment Letter #239 (Great-West Financial) 
(provide no less than a 12 month notice of existing/newly proposed 
exemptions; and no less than a 12 month notice following any DOL-SEC 
standards prior to their effective date); Comment Letter #281 (Bank 
of New York Mellon) (delay for a reasonable period that will allow 
Department to complete review, finalize changes, and for firms to 
implement the processes); Comment Letter #259 (Fidelity Investments) 
(delay the requirements for 6 months following notice if there are 
no changes to the rule; if there are changes, sufficient additional 
time in light of the changes); Comment Letter #248 (Bank of America) 
(delay the applicability date until the DOL finalizes its work and 
financial firms have a reasonable opportunity to implement its 
requirements); Comment Letter #222 (Vanguard) (at least 12 to 18 
months from the date that the Department publishes its amended Final 
Rule, including exemptions, or confirms that there will be no other 
amendments or exemptions).
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    Regardless of whether advocating for a fixed or open-ended delay, 
many commenters focused on the uncertain fate of the PTEs. A 
significant number of industry commenters, for example, stated that 
because the Department, as part of its ongoing examination under the 
Presidential Memorandum, has indicated that it is actively considering 
changes or alternatives to the BIC Exemption, the January 1, 2018, 
applicability date should be delayed at least until such changes or 
alternatives are finalized, with a reasonable period beyond that date 
for compliance. Otherwise, according to these commenters, costly 
systems changes to comply with the BIC Exemption by January 1, 2018, 
must commence or conclude immediately, and these costs could prove 
unnecessary in whole or in part depending on the eventual regulatory 
outcome. Industry commenters stated that it is widely expected within 
the financial industry that there will be certain change(s) to the Rule 
or to the exemption pursuant to the Presidential Memorandum. Industry 
commenters also expressed concerns that uncertainty concerning expected 
changes is likely to lead to consumer confusion and inefficient 
industry development. Several industry commenters indicated their 
concern that, without additional delays, compliance efforts may prove 
to be a waste of time and money.\13\
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    \13\ See Comment Letter #180 (TD Ameritrade). See also Comment 
Letter #212 (American Bankers Association) (``it is difficult for 
institutions to determine where to allocate resources for compliance 
when the Department itself is in the process of re-examining the 
Fiduciary Rule's scope and content.''); Comment Letter #211 
(Transamerica) (``[f]ailure to extend the January 1 applicability 
date will result in: (a) Companies such as Transamerica continuing 
to incur costs and business model changes to prepare for and 
implement a regulatory regime that might differ materially from the 
regime that results from the Rule in effect today. . ..''); See 
Comment Letter #109 (Securities Industry and Financial Markets 
Association); Comment Letter #293 (the SPARK Institute, Inc.) 
(``[u]ntil we know whether the Department intends to make changes to 
avoid the Regulation's negative impacts, and what those changes will 
be, our implementation efforts will be chasing a moving target. That 
approach not only results in significant inefficiencies, it also may 
result in potentially duplicative and unnecessary compliance costs 
if the Department modifies the Regulation. If the Department is 
seriously considering ways to reduce those burdens, it must delay 
the January 1, 2018 applicability date. Otherwise, firms will be 
forced to continue preparing for a rule that may never go into 
effect as currently drafted.'').
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    Many commenters argued that, in spite of the level of uncertainty 
surrounding the ultimate fate of the Fiduciary Rule and PTEs, the 
Department will need to at least partially modify the Fiduciary Rule 
and PTEs. These commenters cite the President's Memorandum dated 
February 3, 2017, requiring the Department to prepare an updated 
analysis of the likely impact of the Fiduciary Rule on access to 
retirement information and financial advice, and predict that this 
analysis will affirm their view that regulatory changes are necessary 
to avoid adverse impacts on advice, access, costs, and litigation.
    Many commenters argue that a delay in the January 1, 2018, 
applicability date is needed in order for the Department and Secretary 
of Labor Acosta to coordinate with the Securities and Exchange 
Commission (SEC) under the new leadership of Chairman Clayton. These 
commenters assert that meaningful coordination simply is not possible 
between now and January 1, 2018, on the many important issues affecting 
retirement investors raised by the Fiduciary Rule and PTEs, including 
the potential confusion for investors caused by different rules and 
regulations applying to different types of investment accounts. One 
commenter suggested that, absent a delay in the January 1, 2018, 
applicability date, there will be no genuine opportunity for the 
Department to coordinate with the SEC under the new leadership regimes. 
The full Fiduciary Rule would become applicable before the SEC had done 
its own rulemaking, leaving the SEC no choice except to apply the 
standards in the Fiduciary Rule to all of those investments subject to 
SEC jurisdiction, write a different rule, which would exacerbate the 
current confusion and inconsistencies, or to do nothing, according to 
one commenter.\14\ On June 1, 2017, the Chairman of the SEC issued a 
statement seeking public comments on the standards of conduct for 
investment advisers and broker dealers when they provide investment 
advice to retail investors. One commenter asserted that coordination 
``suggests that the Department of Labor should await the SEC's receipt 
and evaluation of information.'' \15\ At least one commenter

[[Page 41369]]

believes that the outcome of such coordination should be that the SEC 
adopts the concept of the Impartial Conduct Standards, as contained in 
the PTEs, as a universal standard of care applicable to both brokerage 
and advisory relationships.\16\
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    \14\ Comment Letter #159 (Davis & Harman).
    \15\ Comment Letter #18 (T. Rowe Price Associates). See also 
Comment Letter #72 (National Association of Insurance and Financial 
Advisors). ([C]oordination with the SEC, which currently is 
undertaking a parallel public comment process, is essential.'') 
Other commenters mentioned the need to coordinate with FINRA, state 
insurance and other regulators in addition to the SEC. See, e.g., 
Comment Letter #196 (Prudential Financial) (``assess, in conjunction 
with the SEC and the appropriate state regulatory bodies that also 
have jurisdiction with regard to investment advice retirement 
investors, the appropriate alignment of regulatory responsibility 
and oversight''); Comment Letter #266 (Edward D. Jones and Co.); 
Comment Letter #134 (Insured Retirement Institute). See also Comment 
Letter #212 American Bankers Association (mentioning the Office of 
the Comptroller of the Currency, the Federal Reserve, and the 
Federal Deposit Insurance Corporation).
    \16\ See Comment Letter #375 (Stifel Financial) (``As the SEC 
and DOL consider and coordinate on developing appropriate standards 
of conduct for retail retirement and taxable accounts, I propose a 
simple solution: the SEC adopt a principles-based standard of care 
for Brokerage and Advisory Accounts that incorporates the `Impartial 
Conduct Standards'' as set forth in the DOL's Best Interest Contract 
Exemption.'' And to achieve consistency between retirement and 
taxable accounts, ``[t]he additional provisions of the Best Interest 
Contract should be eliminated.'').
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    With respect to recent and ongoing market developments, many 
commenters stated that a delay would allow for more efficient 
implementation responsive to these innovations, thereby reducing 
burdens on financial services providers and benefiting retirement 
investors. For instance, one industry commenter asserted that a delay 
in the applicability date would provide financial institutions with the 
necessary time to develop ``clean shares'' programs and minimize 
disruption for retirement investors. The commenter stated that 
``[w]ithout a delay in the applicability date, a broker-dealer firm 
that believes the direction of travel is towards the clean share will 
be forced to either eliminate access to commissionable investment 
advice or make the fundamental business changes required by the Best 
Interest Contract Exemption in order to continue offering traditional 
commissionable mutual funds. Both approaches would be incredibly 
disruptive for investors who could have little choice but to either 
move to a fee-based advisory program in order to maintain access to 
advice or enter into a Best Interest Contract only to be transitioned 
into a clean shares program shortly thereafter, and would make it less 
likely that firms will evolve to clean shares.'' \17\ A different 
industry commenter noted that serious consideration is being given to 
the use of mutual fund clean share classes in both fee-based and 
commissionable account arrangements, but that certain enumerated 
obstacles prevent their rapid adoption, stating that ``even absent any 
changes to the rule, more time is needed to develop clean shares and 
other long-term solutions to mitigate conflicts of interest.'' \18\
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    \17\ Comment Letter #208 (Capital Group).
    \18\ Comment Letter #229 (Investment Company Institute).
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    Consumer commenters expressed a concern with using recent and 
ongoing market developments as a basis for a blanket delay. It was 
asserted that if the Department decides to move forward with a delay, 
it should only allow firms to take advantage of the delay if they 
affirmatively show they have already taken concrete steps to harness 
recent market developments for their compliance plans. For example, one 
commenter contends that if a broker-dealer has decided that it is more 
efficient to move straight to clean shares rather than implementing the 
rule using T shares, the broker-dealer should, as a condition of delay, 
be required to provide evidence to the Department of the steps that it 
already has taken to distribute clean shares, including, for example, 
providing evidence of efforts to negotiate sellers agreements with 
funds that are offering clean shares. This commenter stated that the 
Department ``should not provide a blanket delay to all firms, including 
those firms that have not taken any meaningful, concrete steps to 
harness recent market developments and have no plans to do so. This 
narrowly tailored approach has the advantage of benefitting only those 
firms and, in turn, their customers that are using the delay 
productively rather than providing an undue benefit to firms that are 
merely looking for reasons to further stall implementation.'' \19\
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    \19\ Comment Letter #238 (Consumer Federation of America). See 
also Comment Letter #235 (Better Markets) (``In short, it would be 
arbitrary and capricious for the DOL to deprive millions of American 
workers and retirees the full protections and remedies provided by 
the Rule and the exemptions simply because the DOL may conclude that 
some adjustments to the Rule would be appropriate, or because some 
members of industry claim they need additional time to develop new 
products to help them more profitably navigate the Rule and the 
exemptions.'').
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    With respect to risks to retirement investors from a delay, many 
industry commenters argue that the risks of a delay are very minimal, 
as they have largely been mitigated by the existing regulatory 
structure and the applicability of the Impartial Conduct Standards. For 
instance, regarding potential additional costs to retirement investors 
associated with any further delay, many industry commenters stated that 
these concerns have been mitigated, and indeed addressed by the 
Department, through the imposition of the Impartial Conduct Standards 
beginning on June 9, 2017. Various commenters indicated that Financial 
Institutions have, in fact, taken steps to ensure compliance with the 
Impartial Conduct Standards. Commenters have also pointed to the SEC 
and FINRA regulatory regimes as a means to ensure consumers are 
appropriately protected. It is the position of these commenters that 
there is little, if any, risk that consumers will be harmed by a delay 
of the January 1, 2018 applicability date.\20\
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    \20\ See Comment Letter #147 (American Retirement Association); 
Comment Letter #222 (Vanguard) (``there is no need to rush to apply 
the remaining provisions of the Rule to protect investors because 
the Impartial Conduct Standards that are already applicable will 
provide sufficient protection for them during the 12-18 month 
implementation period we propose.''); Comment Letter #180 (TD 
Ameritrade); Comment Letters #111 and #131 (BARR Financial 
Services); Comment Letter #134 (Insured Retirement Institute).
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    By contrast, many commenters representing consumers believe there 
is risk to consumers in further delaying these PTEs from becoming fully 
applicable on January 1, 2018. One commenter, for example, focused on 
the contract provision of the exemption, and expressed concern that 
delaying that provision would significantly undermine the protections 
and effectiveness of the rule.\21\ Other commenters pointed to the 
number of covered transactions happening every day and emphasized the 
compounding nature of the harm if the applicability date is further 
delayed.\22\ According to these commenters, retirement savings face 
undue risk without all of the protections of the Fiduciary Rule and 
PTEs. One commenter asserted that ``absent the contract requirement and 
the legal enforcement mechanism that goes with it, firms would no 
longer have a powerful incentive to comply with the Impartial Conduct 
Standards, implement effective anti-conflict policies and procedures, 
or carefully police conflicts of interest. It could be too easy for 
firms to claim they are complying with the PTEs, but still pay advisers 
in ways that encourage and reward them not to.'' \23\
---------------------------------------------------------------------------

    \21\ See Comment Letter #284 (Coalition of 20 Signatories, 
including AFGE, AFL-CIO, AFSCME, SEIU, NAEFE, Fund Democracy, and 
others); see also Comment Letter #238 (Consumer Federation of 
America).
    \22\ See Comment Letter #213 (AARP). See also Comment Letter 
#216 (American Association for Justice) (``As we previously 
stressed, the earlier delays have harmed investors, and any further 
delay would augment this problem rather than alleviating it.'').
    \23\ Comment Letter #238 (Consumer Federation of America).
---------------------------------------------------------------------------

    Many commenters asserted that a delay would be advantageous both to 
retirement investors and firms; and, conversely, that rigid adherence 
to the

[[Page 41370]]

January 1, 2018, applicability date would be harmful to both groups. 
With respect to firms, it was argued by many that the harm in terms of 
capital expenditures and outlays to meet PTE requirements (such as 
contract, warranty, policies and procedures, and disclosures) that are 
actively under consideration by the Department and that could change 
(or even be repealed) should be obvious to the Department.\24\ With 
respect to harm to retirement investors from not delaying the 
applicability date, on the other hand, one commenter stated that ``the 
stampede to fee-based arrangements will leave many small and mid-sized 
investors without access to advice . . .'' and that ``retirement 
investors are losing access to some retirement products they need to 
ensure guaranteed lifetime incomes, including variable annuities, whose 
usage has plummeted. These market developments will cause more leakage 
and reduce already inadequate retirement resources for millions of 
retirement savers.'' \25\ A different commenter stated that ``some 
firms announced that retirement investors seeking advice would be 
prohibited from commission-based accounts or would be barred from 
purchasing certain products, such as mutual funds and ETFs, in 
commission-based accounts'' and that ``[u]ntil the industry, with the 
assistance of regulators, is able to resolve availability of accounts 
and products previously available to retirement investors, and the 
mechanisms for payment for advice services, there will be disruption 
both to the industry and to retirement plans and investors seeking 
advice.''\26\ Another commenter stated that ``it is easy to see how the 
average client will be confused by correspondence announcing changes to 
their investment products and business relationship (if the Rule 
becomes applicable), followed by correspondence announcing additional 
changes being made for yet another new regulatory scheme (if the Rule 
is rescinded or revised).'' \27\
---------------------------------------------------------------------------

    \24\ See, e.g., Comment Letter #229 (Investment Company 
Institute) (``a delay would result in substantial cost-savings for 
financial institutions by allow them to avoid the significant and 
burdensome costs of implementation that will likely ultimately prove 
unnecessary.''); Comment Letter #251 (Teachers Insurance and Annuity 
Association of America) (``we are very concerned that continuing to 
make significant staff and financial investments to satisfy the 
January 1 applicability date will ultimately prove both a 
considerable waste of resources and a source of confusion for 
retirement investors.''); Comment Letter #109 (Securities Industry 
and Financial Markets Association) (``[d]espite the uncertainties, 
our members have spent hundreds of millions of dollars thus far; 
causing them to spend still more without certainty of the ultimate 
requirements is not responsible.''); See also Comment Letter #196 
(Prudential Financial), Comment Letter #169 (Madison Avenue 
Securities), Comment Letter #280 (Guardian Life Insurance Company of 
America) and Comment Letter #231 (Massachusetts Mutual Life 
Insurance Company).
    \25\ Comment Letter #256 (Jackson National Life Insurance 
Company). See also Comment Letter #211 (Transamerica) (pointing to 
reduced annuity sales).
    \26\ Comment Letter #18 (T. Rowe Price Associates).
    \27\ Comment Letter #90 (True Capital Advisors).
---------------------------------------------------------------------------

    Many commenters drew attention to pending litigation challenging 
the Fiduciary Rule and PTEs. In this regard, a commenter stated that 
``[i]t would be poor process for DOL to allow the remaining 
requirements . . . to take effect on January 1, 2018, without providing 
detailed and clear guidance on critical open legal issues generated 
entirely by the DOL's own regulatory actions. '' \28\ Another commenter 
similarly suggested that ``[a]t the very least, an extension is needed 
to ensure that the regulation accurately reflects the Department's 
position in litigation'' regarding the limitation on arbitration.\29\
---------------------------------------------------------------------------

    \28\ Comment Letter #256 (Jackson National Life Insurance 
Company).
    \29\ Comment Letter #8 (U.S. Chamber of Commerce).
---------------------------------------------------------------------------

    Regarding the contract and warranty requirements, a significant 
number of commenters remain divided on these provisions, with many 
expressing concern about potential negative implications for access to 
advice and investor costs. Many financial service providers have 
expressed particular concern about the potential for class litigation 
and firm liability, and that absent a delay of those provisions, there 
will be a reduction in advice and services to consumers, particularly 
those with small accounts who may be most in need of good investment 
advice.\30\ They have suggested that alternative approaches might 
promote the Department's interest in compliance with fiduciary 
standards, while minimizing the risk that firms restrict access to 
valuable advice and products based on liability concerns. These 
commenters argue that a delay of the applicability date is needed to 
allow the Department an opportunity to review the RFI responses and 
develop alternatives to these requirements. For instance, one commenter 
stated that ``the Department should further delay the January 1, 2018 
applicability date of the contract, disclosure and warranty 
requirements of the BICE, Principal Transactions Exemption, and 
amendments to PTE 84-24, due to the high level of controversy 
surrounding the increased liabilities associated with these 
requirements--particularly when their incremental benefits are weighed 
against their harm to the retirement savings product marketplace.'' 
\31\
---------------------------------------------------------------------------

    \30\ See, e.g., Comment Letter #293 (SPARK Institute, Inc.) 
(``[i]n response to the new definition of fiduciary investment 
advice that became applicable on June 9, 2017, some retirement 
investors have already been cut off from certain retirement 
products, offerings, and information. Smaller plans are losing 
access to information and guidance from their service providers. 
Also, because of increased litigation risk associated with the 
[PTEs] provisions set to become applicable on January 1, 2018, this 
contraction in retirement services will only become worse if the 
Department fails to delay the upcoming applicability date and 
materially revise the [Fiduciary Rule and PTEs].''). See also 
Comment Letter #289 (Sorrento Pacific Financial) (``We believe an 
extension of the Rule's January 1, 2018 applicability date necessary 
for the Department to thoroughly examine the Rule for adverse 
impacts on Americans' access to retirement investment advice and 
assistance, as required by the President's Memorandum. We are deeply 
concerned that the Rule will cause significant harm to retirement 
investors by restricting their access to retirement investment 
advice and services and subjecting firms to meritless litigation due 
to overly broad definitions contained in the Rule, and so we 
strongly support the Department in considering a further delay of 
the Rule and undertaking this examination.'').
    \31\ Comment Letter #267 (American Council of Life Insurers).
---------------------------------------------------------------------------

    Based on its review and evaluation of the public comments, the 
Department is proposing to extend the Transition Period in the BIC 
Exemption and Principal Transaction Exemption for 18 months until July 
1, 2019, and to delay the applicability date of certain amendments to 
PTE 84-24 for the same period. The same rules and standards in effect 
now would remain in effect throughout the duration of the extended 
Transition Period, if adopted. Thus, Financial Institutions and 
Advisers would have to give prudent advice that is in retirement 
investors' best interest, charge no more than reasonable compensation, 
and avoid misleading statements. It is based on the continued adherence 
to these fundamental protections that the Department, pursuant to 29 
U.S.C. 1108, would consider granting the proposed extension until July 
1, 2019.\32\
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    \32\ On May 22, 2017, the Department issued a temporary 
enforcement policy covering the transition period between June 9, 
2017, and January 1, 2018, during which the Department will not 
pursue claims against investment advice fiduciaries who are working 
diligently and in good faith to comply with their fiduciary duties 
and to meet the conditions of the PTEs, or otherwise treat those 
investment advice fiduciaries as being in violation of their 
fiduciary duties and not compliant with the PTEs. See Field 
Assistance Bulletin 2017-02 (May 22, 2017). Comments are solicited 
on whether to extend this policy for the same period covered by the 
proposed extension of the Transition Period.
---------------------------------------------------------------------------

    The Department believes a delay may be necessary and appropriate 
for multiple reasons. To begin with, the Department has not yet 
completed the reexamination of the Fiduciary Rule and PTEs, as directed 
by the President on

[[Page 41371]]

February 3, 2017. More time is needed to carefully and thoughtfully 
review the substantial commentary received in response to the March 2, 
2017, solicitation for comments and to honor the President's directive 
to take a hard look at any potential undue burden. Whether, and to what 
extent, there will be changes to the Fiduciary Rule and PTEs as a 
result of this reexamination is unknown until its completion. The 
examination will help identify any potential alternative exemptions or 
conditions that could reduce costs and increase benefits to all 
affected parties, without unduly compromising protections for 
retirement investors. The Department anticipates that it will have a 
much clearer image of the range of such alternatives once it carefully 
reviews the responses to the RFI. The Department also anticipates it 
will propose in the near future a new and more streamlined class 
exemption built in large part on recent innovations in the financial 
services industry. However, neither such a proposal nor any other 
changes or modifications to the Fiduciary Rule and PTEs, if any, 
realistically could be implemented by the current January 1, 2018, 
applicability date. Nor would that timeframe accommodate the 
Department's desire to coordinate with the SEC in the development of 
any such proposal or changes. The Chairman of the SEC has recently 
published a Request for Information seeking input on the ``standards of 
conduct for investment advisers and broker-dealers,'' and has welcomed 
the Department's invitation to engage constructively as the Commission 
moves forward with its examination of the standards of conduct 
applicable to investment advisers and broker-dealers, and related 
matters. Absent the proposed delay, however, Financial Institutions and 
Advisers would feel compelled to ready themselves for the provisions 
that become applicable on January 1, 2018, despite the possibility of 
alternatives on the horizon. Accordingly, the proposed delay avoids 
obligating financial services providers to incur costs to comply with 
conditions, which may be revised, repealed, or replaced, as well as 
attendant investor confusion.
    Based on the evidence before it at this time while it continues to 
conduct this examination, the Department is proposing a time-certain 
delay of 18 months. The Department is also interested in an alternative 
approach raised by several commenters to the RFI, however--that the 
Department institute a delay that would end a specified period after a 
certain action on the part of the Department, e.g., a delay lasting 
until 12 months after the Department concludes its review as directed 
by the Presidential Memorandum. The Department is concerned that this 
type of delay would provide insufficient certainty to Financial 
Institutions and other market participants who are working to comply 
with the full range of conditions under the relevant PTEs. Further, the 
Department is concerned that this type of delay would unnecessarily 
harm consumers by adding uncertainty and confusion to the market. 
Nevertheless, the Department requests comments on whether it could 
structure the delay in a way that could be beneficial to retirement 
investors and to market participants. If commenters think that such a 
structure would be beneficial, the Department requests comments 
regarding what event or action on the part of the Department should 
begin the period by which the end of the delay is measured (e.g., the 
end of the Department's examination pursuant to the Presidential 
Memorandum, issuance of a proposed or final new PTEs or a statement 
that the Department does not intend any further changes or revisions).
    Separately, the Department also requests comments on whether it 
would be beneficial to adopt a tiered approach. For example, this could 
be a final rule that delayed the Transition Period until the earlier or 
the later of (a) a date certain or (b) the end of a period following 
the occurrence of a defined event. The Department is particularly 
interested in comments as to whether such a tiered approach would 
provide sufficient certainty to be beneficial, and how best it could 
communicate with stakeholders the determination that one date or the 
other would trigger compliance. The Department is interested in 
comments that provide insight as to any relative benefits or harms of 
these three different delay approaches: (1) A delay set for a time 
certain, including the 18-months proposed by this document, (2) a delay 
that ends a specified period after the occurrence of a specific event, 
and (3) a tiered approach where the delay is set for the earlier of or 
the later of (a) a time certain and (b) the end of a specified period 
after the occurrence of a specific event.
    Finally, several commenters suggested that the Department condition 
any delay of the Transition Period on the behavior of the entity 
seeking relief under the Transition Period. These commenters suggested 
generally that any delay should be conditioned, for example, on a 
Financial Institution's showing that it has, or a promise that it will, 
take steps to harness recent innovations in investment products and 
services, such as ``clean shares.'' Conditions of this type generally 
seem more relevant in the context of considering the development of 
additional and more streamlined exemption approaches that take into 
account recent marketplace innovations and less appropriate and germane 
in the context of a decision whether to extend the Transition Period. 
Although this proposal, therefore, does not adopt this approach, the 
Department solicits comments on this approach, in particular the 
benefits and costs of this suggestion, and ways in which the Department 
could ensure the workability of such an approach.

D. Regulatory Impact Analysis

    The Department expects that this proposed transition period 
extension would produce benefits that justify associated costs. The 
proposed extension would avert the possibility of a costly and 
disorderly transition from the Impartial Conduct Standards to full 
compliance with the exemption conditions, and thereby reduce some 
compliance costs. As stated above, the Department currently is engaged 
in the process of reviewing the Fiduciary Rule and PTEs as directed in 
the Presidential Memorandum and reviewing comments received in response 
to the RFI. As part of this process, the Department will determine 
whether further changes to the Fiduciary Rule and PTEs are necessary. 
Although many firms have taken steps to ensure that they are meeting 
their fiduciary obligations and satisfying the Impartial Conduct 
Standards of the PTEs, they are encountering uncertainty regarding the 
potential future revision or possible repeal of the Fiduciary Rule and 
PTEs. Therefore, as reflected in the comments, many financial firms 
have slowed or halted their efforts to prepare for full compliance with 
the exemption conditions that currently are scheduled to become 
applicable on January 1, 2018, because they are concerned about 
committing resources to comply with PTE conditions that ultimately 
could be modified or repealed. This proposed applicability date 
extension will assure stakeholders that they will not be subject to the 
other exemption conditions in the BIC and the Principal Transaction 
PTEs until at least July 1, 2019. Of course, the benefits of extending 
the transition period generally will be proportionately larger for 
those firms that currently have committed fewer resources to comply 
with the full exemption conditions. The Department's objective is to 
complete its

[[Page 41372]]

review pursuant to the President's Memorandum, analyze comments 
received in response to the RFI, and propose and finalize any changes 
to the Rule or PTEs sufficiently before July 1, 2019, to provide firms 
with sufficient time to design and implement an orderly transition 
process.
    The Department believes that investor losses from the proposed 
transition period extension could be relatively small. Because the 
Fiduciary Rule and the Impartial Conduct Standards became applicable on 
June 9, 2017, the Department believes that firms already have made 
efforts to adhere to the rule and those standards. Thus, the Department 
believes that relative to deferring all of the provisions of the 
Fiduciary Rule and PTEs, a substantial portion of the investor gains 
predicted in the Department's 2016 regulatory impact analysis of the 
Fiduciary Rule and PTEs (2016 RIA) would remain intact for the proposed 
extended transition period.

1. Executive Order 12866 Statement

    This proposal is an economically significant action within the 
meaning of section 3(f)(1) of Executive Order 12866, because it would 
likely have an effect on the economy of $100 million in at least one 
year. Accordingly, the Department has considered the costs and benefits 
of the proposal, which has been reviewed by the Office of Management 
and Budget (OMB).
a. Investor Gains
    The Department's 2016 RIA estimated a portion of the potential 
gains for IRA investors at between $33 billion and $36 billion over the 
first 10 years for one segment of the market and category of conflicts 
of interest. It predicted, but did not quantify, additional gains for 
both IRA and ERISA plan investors.
    With respect to this proposal, the Department considered whether 
investor losses might result. Beginning on June 9, 2017, Financial 
Institutions and Advisers generally are required to (1) make 
recommendations that are in their client's best interest (i.e., IRA 
recommendations that are prudent and loyal), (2) avoid misleading 
statements, and (3) charge no more than reasonable compensation for 
their services. If they fully adhere to these requirements, the 
Department expects that affected investors will generally receive a 
significant portion of the estimated gains. However, because the PTE 
conditions are intended to support and provide accountability 
mechanisms for such adherence (e.g., conditions requiring advisers to 
provide a written acknowledgement of their fiduciary status and 
adherence to the Impartial Conduct Standards and enter into enforceable 
contracts with IRA investors) the Department acknowledges that the 
proposed delay of the PTE conditions may result in deferral of some of 
the estimated investor gains. One RFI commenter suggested that an 
additional one-year extension of the transition period during which the 
full PTE conditions would not apply would reduce the incentive for 
mutual fund companies to market lower-cost and higher-performing funds, 
which will reduce consumer access to such products, resulting in 
consumer losses. This commenter argued that in the case of IRA 
rollovers, the consumer losses from continued conflicted advice and 
reduced access to more consumer-friendly investment products could 
compound for decades.
    Advisers who presently are ERISA-plan fiduciaries are especially 
likely to satisfy fully the PTEs' Impartial Conduct Standards before 
July 1, 2019, because they are subject to ERISA standards of prudence 
and loyalty and thus would be subject to claims for civil liability 
under ERISA if they violate their fiduciary obligations or fail to 
satisfy the Impartial Conduct Standards if they use an exemption. 
Moreover, fiduciary advisers who do not provide impartial advice as 
required by the Rule and PTEs in the IRA market would violate the 
prohibited transaction rules of the Code and become subject to the 
prohibited transaction excise tax. Even though advisers currently are 
not specifically required by the terms of these PTEs to notify 
retirement investors of the Impartial Conduct Standards and to 
acknowledge their fiduciary status, many investors expect they are 
entitled to advice that adheres to a fiduciary standard because of the 
publicity the final rule and PTEs have received from the Department and 
media, and the Department understands that many advisers notified 
consumers voluntarily about the imposition of the standard and their 
adherence to that standard as a best practice.
    Comments received by the Department indicate that many financial 
institutions already have completed or largely completed work to 
establish policies and procedures necessary to make many of the 
business structure and practice shifts necessary to support compliance 
with the Fiduciary Rule and Impartial Conduct Standards (e.g., drafting 
and implementing training for staff, drafting client correspondence and 
explanations of revised product and service offerings, negotiating 
changes to agreements with product manufacturers as part of their 
approach to compliance with the PTEs, changing employee and agent 
compensation structures, and designing product offerings that mitigate 
conflicts of interest). The Department believes that many financial 
institutions are using this compliance infrastructure to ensure that 
they currently are meeting the requirements of the Fiduciary Rule and 
Impartial Conduct Standards, which the Department believes will largely 
protect the investor gains estimated in the 2016 RIA.\33\
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    \33\ The Department's baseline for this RIA includes all current 
rules and regulations governing investment advice including those 
that would become applicable on January 1, 2018, absent this 
proposed delay. The RIA did not quantify incremental gains by each 
particular aspect of the rule and PTEs.
---------------------------------------------------------------------------

b. Cost Savings
    Based on comments received in response to the RFI that are 
discussed in Section C, above, the Department believes firms that are 
fiduciaries under the Fiduciary Rule have committed resources to 
implementing procedures to support compliance with their fiduciary 
obligations. This may include changing their compensation structures 
and monitoring the practices and procedures of their advisers to ensure 
that conflicts of interest do not cause violations of the Fiduciary 
Rule and Impartial Conduct Standards of the PTEs and maintaining 
sufficient records to corroborate that they are complying with the 
Fiduciary Rule and PTEs. These firms have considerable flexibility to 
choose precisely how they will achieve compliance with the PTEs during 
the proposed extended transition period. The Department does not have 
sufficient data to estimate such costs; therefore, they are not 
quantified.
    Some commenters have asserted that the proposed transition period 
extension could result in cost savings for firms compared to the costs 
that were estimated in the Department's 2016 RIA to the extent that the 
requirements of the Fiduciary Rule and PTE conditions are modified in a 
way that would result in less expensive compliance costs. However, the 
Department generally believes that start-up costs not yet incurred for 
requirements now scheduled to become applicable on January 1, 2018, 
should not be included, at this time, as a cost savings associated with 
this proposal because the proposal would merely delay the full 
implementation of certain conditions in the PTEs until July 1, 2019, 
while the Department considers whether to propose changes and 
alternatives to the exemptions. The Department would be required to 
assume for purposes of this regulatory

[[Page 41373]]

impact analysis that those start-up costs that have not been incurred 
generally would be delayed rather than avoided unless or until the 
Department acts to modify the compliance obligations of firms and 
advisers to make them more efficient. Nonetheless, even based on that 
assumption, there may be some cost savings that could be quantified as 
arising from the delay being proposed in this document because some 
ongoing costs would not be incurred until July 1, 2019. The Department 
has taken two approaches to quantifying the savings resulting from the 
delay in incurring ongoing costs: (1) Quantifying the costs based on a 
shift in the time horizon of the costs (i.e., comparing the present 
value of the costs of complying over a ten year period beginning on 
January 1, 2018 with the costs of complying, instead, over a ten year 
period beginning on July 1, 2019); and (2) quantifying the reduced 
costs during the 18 month period of delay from January 1, 2018 to July 
1, 2019, during which regulated parties would otherwise have had to 
comply with the full conditions of the BIC Exemption and Principal 
Transaction Exemption but for the delay.
    The first of the two approaches reflects the time value of money 
(i.e., the idea that money available at the present time is worth more 
than the same amount of money in the future, because that money can 
earn interest). The deferral of ongoing costs by 18 months will allow 
the regulated community to use money they would have spent on ongoing 
compliance costs for other purposes during that time period. The 
Department estimates that the ten-year present value of the cost 
savings arising from this 18 month deferral of ongoing compliance 
costs, and the regulated community's resulting ability to use the money 
for other purposes is $551.6 million using a three percent discount 
rate \34\ and $1.0 billion using a seven percent discount rate.\35\
---------------------------------------------------------------------------

    \34\ Annualized to $64.7 million per year.
    \35\ Annualized to $143.9 million per year.
---------------------------------------------------------------------------

    The second of the two approaches simply estimates the expenses 
foregone during the period from January 1, 2018 to July 1, 2019 as a 
result of the delay. When the Department published the 2016 Final Rule 
and accompanying PTEs, it calculated that the total ongoing compliance 
costs of the rule and PTEs were $1.5 billion annually. Therefore, the 
Department estimates the ten-year present value of the cost savings of 
firms not being required to incur ongoing compliance costs during an 18 
month delay would be approximately $2.2 billion using a three percent 
discount rate \36\ and $2.0 billion using a seven percent discount 
rate.37 38
---------------------------------------------------------------------------

    \36\ Annualized to $252.1 million per year.
    \37\ Annualized to $291.1 million per year.
    \38\ The Department notes that firms may be incurring some costs 
to comply with the impartial conduct standards; however, it has no 
data to enable it to estimate these costs. The Department solicits 
comments on the costs of complying with the impartial conduct 
standards, and how these costs interact with the costs of all other 
facets of compliance with the conditions of the PTEs.
---------------------------------------------------------------------------

    Based on its progress thus far with the review and reexamination 
directed by the President, however, the Department believes there may 
be evidence of alternatives that reduce costs and increase benefits to 
all affected parties, while maintaining protections for retirement 
investors. The Department anticipates that it will have a much clearer 
image of the range of such alternatives once it completes a careful 
review of the data and evidence submitted in response to the RFI.
    The Department also cannot determine at this time to what degree 
the infrastructure that affected firms have already established to 
ensure compliance with the Fiduciary Rule and PTEs exemptions would be 
sufficient to facilitate compliance with the Fiduciary Rule and PTEs 
conditions if they are modified in the future.
c. Alternatives Considered
    While the Department considered several alternatives that were 
informed by public comments, this proposal likely would yield the most 
desirable outcome including avoidance of costly market disruptions and 
investor losses. In weighing different options, the Department took 
numerous factors into account. The Department's objective was to avoid 
unnecessary confusion and uncertainty in the investment advice market, 
facilitate continued marketplace innovation, and minimize investor 
losses.
    The Department considered not proposing any extension of the 
transition period, which would mean that the remaining conditions in 
the PTEs would become applicable on January 1, 2018. The Department is 
not pursuing this alternative, however, because it would not provide 
sufficient time for the Department to complete its ongoing review of, 
or propose and finalize any changes to the Fiduciary Rule and PTEs. 
Moreover, absent the proposed extension of the transition period, 
Financial Institutions and Advisers would feel compelled to prepare for 
full compliance with PTE conditions that become applicable on January 
1, 2018, the applicability date of the additional PTE conditions 
despite the possibility that the Department could adopt more efficient 
alternatives. This could lead to unnecessary compliance costs and 
market disruptions. As compared to a shorter delay with the possibility 
of consecutive additional delays, if needed, this proposal would 
provide more certainty for affected stakeholders because it sets a firm 
date for full compliance, which would allow for proper planning and 
reliance. The Department's objective would be to complete its review of 
the Fiduciary Rule and PTEs pursuant to the President's Memorandum and 
the RFI responses sufficiently in advance of July 1, 2019, to provide 
firms with enough time to prepare for whatever action is prompted by 
the review. As discussed above, the Department believes that investor 
losses associated with this proposed extension would be relatively 
small. The fact that the Fiduciary Rule and the Impartial Conduct 
Standards are now in effect makes it likely that retirement investors 
will experience much of the potential gains from a higher conduct 
standard and minimizes the potential for an undue reduction in those 
gains as compared to the full protections of all the PTE conditions as 
discussed in the 2016 Regulatory Impact Analysis.
2. Paperwork Reduction Act
    The Paperwork Reduction Act (PRA) (44 U.S.C. 3501, et seq.) 
prohibits federal agencies from conducting or sponsoring a collection 
of information from the public without first obtaining approval from 
the Office of Management and Budget (OMB). See 44 U.S.C. 3507. 
Additionally, members of the public are not required to respond to a 
collection of information, nor be subject to a penalty for failing to 
respond, unless such collection displays a valid OMB control number. 
See 44 U.S.C. 3512.
    OMB has previously approved information collections contained in 
the Fiduciary Rule and PTEs. The Department now is proposing to extend 
the transition period for the full conditions of the PTEs associated 
with its Fiduciary Rule until July 1, 2019. The Department is not 
proposing to modify the substance of the information collections at 
this time; however, the current OMB approval periods of the information 
collection requests (ICRs) expire prior to the new proposed 
applicability date for the full conditions of the PTEs as they 
currently exist. Therefore, many of the information collections will 
remain inactive for the remainder of the current ICR approval periods. 
The ICRs contained in the exemptions are discussed below.

[[Page 41374]]

    PTE 2016-01, the Best Interest Contract Exemption: The information 
collections in PTE 2016-01, the BIC Exemption, are approved under OMB 
Control Number 1210-0156 through June 30, 2019. The exemption requires 
disclosure of material conflicts of interest and basic information 
relating to those conflicts and the advisory relationship (Sections II 
and III), contract disclosures, contracts and written policies and 
procedures (Section II), pre-transaction (or point of sale) disclosures 
(Section III(a)), web-based disclosures (Section III(b)), documentation 
regarding recommendations restricted to proprietary products or 
products that generate third party payments (Section (IV), notice to 
the Department of a Financial Institution's intent to rely on the PTE, 
and maintenance of records necessary to prove that the conditions of 
the PTE have been met (Section V). Although the start-up costs of the 
information collections as they are set forth in the current PTE may 
not be incurred prior to June 30, 2019 due to uncertainty around the 
Department's ongoing consideration of whether to propose changes and 
alternatives to the exemptions, they are reflected in the revised 
burden estimate summary below. The ongoing costs of the information 
collections will remain inactive through the remainder of the current 
approval period.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21002, 21071.
    PTE 2016-02, the Prohibited Transaction Exemption for Principal 
Transactions in Certain Assets Between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs (Principal Transactions Exemption): 
The information collections in PTE 2016-02, the Principal Transactions 
Exemption, are approved under OMB Control Number 1210-0157 through June 
30, 2019. The exemption requires Financial Institutions to provide 
contract disclosures and contracts to Retirement Investors (Section 
II), adopt written policies and procedures (Section IV), make 
disclosures to Retirement Investors and on a publicly available Web 
site (Section IV), maintain records necessary to prove they have met 
the PTE conditions (Section V). Although the start-up costs of the 
information collections as they are set forth in the current PTE may 
not be incurred prior to June 30, 2019 due to uncertainty around the 
Department's ongoing consideration of whether to propose changes and 
alternatives to the exemptions, they are reflected in the revised 
burden estimate summary below. The ongoing costs of the information 
collections will remain inactive through the remainder of the current 
approval period.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21089, 21129.
    Amended PTE 84-24: The information collections in Amended PTE 84-24 
are approved under OMB Control Number 1210-0158 through June 30, 2019. 
As amended, Section IV(b) of PTE 84-24 requires Financial Institutions 
to obtain advance written authorization from an independent plan 
fiduciary or IRA holder and furnish the independent fiduciary or IRA 
holder with a written disclosure in order to receive commissions in 
conjunction with the purchase of insurance and annuity contracts. 
Section IV(c) of PTE 84-24 requires investment company Principal 
Underwriters to obtain approval from an independent fiduciary and 
furnish the independent fiduciary with a written disclosure in order to 
receive commissions in conjunction with the purchase by a plan of 
securities issued by an investment company Principal Underwriter. 
Section V of PTE 84-24, as amended, requires Financial Institutions to 
maintain records necessary to demonstrate that the conditions of the 
PTE have been met.
    The proposal delays the applicability date of amendments to PTE 84-
24 until July 1, 2019, except that the Impartial Conduct Standards 
became applicable on June 9, 2017. The Department does not have 
sufficient data to estimate that number of respondents that will use 
PTE 84-24 with the inclusion of Impartial Conduct Standards but delayed 
applicability date of amendments. Therefore, the Department has not 
revised its burden estimate.
    For a more detailed discussion of the information collections and 
associated burden of this PTE, see the Department's PRA analysis at 81 
FR 21147, 21171.
    These paperwork burden estimates, which comprise start-up costs 
that will be incurred prior to the July 1, 2019 effective date (and the 
June 30, 2019 expiration date of the current approval periods), are 
summarized as follows:
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Best Interest Contract Exemption and (2) Final 
Investment Advice Regulation.
    OMB Control Number: 1210-0156.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 19,890 over the three year period; 
annualized to 6,630 per year.
    Estimated Number of Annual Responses: 34,046,054 over the three 
year period; annualized to 11,348,685 per year.
    Frequency of Response: When engaging in exempted transaction.
    Estimated Total Annual Burden Hours: 2,125,573 over the three year 
period; annualized to 708,524 per year.
    Estimated Total Annual Burden Cost: $2,468,487,766 during the three 
year period; annualized to $822,829,255 per year.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Prohibited Transaction Exemption for Principal 
Transactions in Certain Assets between Investment Advice Fiduciaries 
and Employee Benefit Plans and IRAs and (2) Final Investment Advice 
Regulation.
    OMB Control Number: 1210-0157.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 6,075 over the three year period; 
annualized to 2,025 per year.
    Estimated Number of Annual Responses: 2,463,802 over the three year 
period; annualized to 821,267 per year.
    Frequency of Response: When engaging in exempted transaction; 
Annually.
    Estimated Total Annual Burden Hours: 45,872 over the three year 
period; annualized to 15,291 per year.
    Estimated Total Annual Burden Cost: $1,955,369,661 over the three 
year period; annualized to $651,789,887 per year.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Titles: (1) Prohibited Transaction Exemption (PTE) 84-24 for 
Certain Transactions Involving Insurance Agents and Brokers, Pension 
Consultants, Insurance Companies and Investment Company Principal 
Underwriters and (2) Final Investment Advice Regulation.
    OMB Control Number: 1210-0158.
    Affected Public: Businesses or other for-profits; not for profit 
institutions.
    Estimated Number of Respondents: 21,940.
    Estimated Number of Annual Responses: 3,306,610.
    Frequency of Response: Initially, Annually, When engaging in 
exempted transaction.
    Estimated Total Annual Burden Hours: 172,301 hours.
    Estimated Total Annual Burden Cost: $1,319,353.

[[Page 41375]]

3. Regulatory Flexibility Act
    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) imposes 
certain requirements with respect to Federal Rules that are subject to 
the notice and comment requirements of section 553(b) of the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) or any other laws. 
Unless the head of an agency certifies that a proposed rule is not 
likely to have a significant economic impact on a substantial number of 
small entities, section 603 of the RFA requires that the agency present 
an initial regulatory flexibility analysis (IRFA) describing the Rule's 
impact on small entities and explaining how the agency made its 
decisions with respect to the application of the Rule to small 
entities. Small entities include small businesses, organizations and 
governmental jurisdictions.
    This proposal merely extends the transition period for the PTEs 
associated with the Department's 2016 Final Fiduciary Rule. 
Accordingly, pursuant to section 605(b) of the RFA, the Deputy 
Assistant Secretary of the Employee Benefits Security Administration 
hereby certifies that the proposal will not have a significant economic 
impact on a substantial number of small entities.

4. Congressional Review Act

    This proposal is subject to the Congressional Review Act (CRA) 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.) and will be transmitted to Congress and the 
Comptroller General for review if finalized. The proposal is a ``major 
rule'' as that term is defined in 5 U.S.C. 804, because it is likely to 
result in an annual effect on the economy of $100 million or more.

5. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-
4) requires each Federal agency to prepare a written statement 
assessing the effects of any Federal mandate in a proposed or final 
agency rule that may result in an expenditure of $100 million or more 
(adjusted annually for inflation with the base year 1995) in any one 
year by State, local, and tribal governments, in the aggregate, or by 
the private sector. For purposes of the Unfunded Mandates Reform Act, 
as well as Executive Order 12875, this proposal does not include any 
federal mandate that we expect would result in such expenditures by 
State, local, or tribal governments, or the private sector. The 
Department also does not expect that the proposed delay will have any 
material economic impacts on State, local or tribal governments, or on 
health, safety, or the natural environment.

6. Executive Order 13771: Reducing Regulation and Controlling 
Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment, or otherwise 
promulgates, a new regulation. In furtherance of this requirement, 
section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations shall, to the extent permitted by 
law, be offset by the elimination of existing costs associated with at 
least two prior regulations.
    The impacts of this proposal are categorized consistently with the 
analysis of the original Fiduciary Rule and PTEs, and the Department 
has also concluded that the impacts identified in the Regulatory Impact 
Analysis accompanying the 2016 final rule may still be used as a basis 
for estimating the potential impacts of that final rule. It has been 
determined that, for purposes of E.O. 13771, the impacts of the 
Fiduciary Rule that were identified in the 2016 analysis as costs, and 
that are presently categorized as cost savings (or negative costs) in 
this proposal, and impacts of the Fiduciary Rule that were identified 
in the 2016 analysis as a combination of transfers and positive 
benefits are categorized as a combination of (opposite-direction) 
transfers and negative benefits in this proposal. Accordingly, OMB has 
determined that this proposal, if finalized as proposed, would be an 
E.O. 13771 deregulatory action.

E. List of Proposed Amendments to Prohibited Transaction Exemptions

    The Secretary of Labor has discretionary authority to grant 
administrative exemptions under ERISA and the Code on an individual or 
class basis, but only if the Secretary first finds that the exemptions 
are (1) administratively feasible, (2) in the interests of plans and 
their participants and beneficiaries and IRA owners, and (3) protective 
of the rights of the participants and beneficiaries of such plans and 
IRA owners. 29 U.S.C. 1108(a); see also 26 U.S.C. 4975(c)(2).
    Under this authority, and based on the reasons set forth above, the 
Department is proposing to amend the: (1) Best Interest Contract 
Exemption (PTE 2016-01); (2) Class Exemption for Principal Transactions 
in Certain Assets Between Investment Advice Fiduciaries and Employee 
Benefit Plans and IRAs (PTE 2016-02); and (3) Prohibited Transaction 
Exemption 84-24 (PTE 84-24) for Certain Transactions Involving 
Insurance Agents and Brokers, Pension Consultants, Insurance Companies, 
and Investment Company Principal Underwriters, as set forth below. 
These amendments would be effective on the date of publication in the 
Federal Register of final amendments or January 1, 2018, whichever is 
earlier.
    1. The BIC Exemption (PTE 2016-01) would be amended as follows:
    A. The date ``January 1, 2018'' would be deleted and ``July 1, 
2019'' inserted in its place in the introductory DATES section.
    B. Section II(h)(4)--Level Fee Fiduciaries provides streamlined 
conditions for ``Level Fee Fiduciaries.'' The date ``January 1, 2018'' 
would be deleted and ``July 1, 2019'' inserted in its place. Thus, for 
Level Fee Fiduciaries that are robo-advice providers, and therefore not 
eligible for Section IX (pursuant to Section IX(c)(3)), the Impartial 
Conduct Standards in Section II(h)(2) are applicable June 9, 2017, but 
the remaining conditions of Section II(h) would be applicable July 1, 
2019, rather than January 1, 2018.
    C. Section II(a)(1)(ii) provides for the amendment of existing 
contracts by negative consent. The date ``January 1, 2018'' would be 
deleted where it appears in this section, including in the definition 
of ``Existing Contract,'' and ``July 1, 2019'' inserted in its place.
    D. Section IX--Transition Period for Exemption. The date ``January 
1, 2018'' would be deleted and ``July 1, 2019'' inserted in its place. 
Thus, the Transition Period identified in Section IX(a) would be 
extended from June 9, 2017, to July 1, 2019, rather than June 9, 2017, 
to January 1, 2018.
    2. The Class Exemption for Principal Transactions in Certain Assets 
Between Investment Advice Fiduciaries and Employee Benefit Plans and 
IRAs (PTE 2016-02), would be amended as follows:
    A. The date ``January 1, 2018'' would be deleted and ``July 1, 
2019'' inserted in its place in the introductory DATES section.
    B. Section II(a)(1)(ii) provides for the amendment of existing 
contracts by negative consent. The date ``January 1, 2018'' would be 
deleted where it appears in this section, including in the definition 
of ``Existing Contract,'' and ``July 1, 2019'' inserted in its place.

[[Page 41376]]

    C. Section VII--Transition Period for Exemption. The date ``January 
1, 2018'' would be deleted and ``July 1, 2019'' inserted in its place. 
Thus, the Transition Period identified in Section VII(a) would be 
extended from June 9, 2017, to July 1, 2019, rather than June 9, 2017, 
to January 1, 2018.
    3. Prohibited Transaction Exemption 84-24 for Certain Transactions 
Involving Insurance Agents and Brokers, Pension Consultants, Insurance 
Companies, and Investment Company Principal Underwriters, would be 
amended as follows:
    A. The date ``January 1, 2018'' would be deleted where it appears 
in the introductory DATES section and ``July 1, 2019'' inserted in its 
place.

    Signed at Washington, DC, this 28th day of August 2017.
Timothy D. Hauser,
Deputy Assistant Secretary for Program Operations, Employee Benefits 
Security Administration, Department of Labor.
[FR Doc. 2017-18520 Filed 8-30-17; 8:45 am]
BILLING CODE 4510-29-P